Greenbook/Tealbook

Prefatory Note

The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act.

1

In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff.

CONFIDENTIAL (FR) FOMC CLASS III

June 30,

SUPPLEMENT CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the

Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

1995

TABLE OF CONTENTS

Page THE DOMESTIC NONFINANCIAL ECONOMY

Manufacturers' inventories and new orders. . . . .. . . University of Michigan survey . Sales of new homes . . . . . . . . . . . . . . Initial claims for unemployment insurance. - Real GDP and related items . . . . . . . . . . Tax cut provisions of the budget resolution. Tables Changes in manufacturing and trade inventories Inventories relative to sales . . . . . .... Real

gross domestic product and related items.

Charts Inventory-sales ratios in manufacturing

by market category. . Consumer surveys . . . . . Single-family homes .

. . .

. . .

. . . . ..

.

.

.

.

.

.

.

.

.

.

.

.

.

.

THE FINANCIAL ECONOMY Tables

Selected financial market quotations Commercial bank credit and short- and intermediate-term business credit . . THE

10

11

INTERNATIONAL ECONOMY

Prices of U.S. imports and exports . . . . . . . . . . . . Erratum .

. .

. .

. .. . ..

. .

12 13

.

14

Table Prices of U.S. imports and exports .

.

SUPPLEMENTAL NOTES

THE DOMESTIC NONFINANCIAL ECONOMY Manufacturers' Inventories and New Orders

In book-value terms, manufacturers' inventories expanded at a $30.8 billion annual rate in May (a monthly increase of 0.6 percent), following an upward-revised increase of $43.2 billion in April.

With a 0.5 percent rise in factory shipments last month,

the inventory-shipments ratio for all manufacturing was unchanged at 1.37 months; although up from earlier in the year, the ratio was about the same as the level of 1.38 months posted in May of last year. As in earlier months, a sizable portion of the accumulation in May was in stocks of machinery and business equipment.

Indeed, for

nondefense capital goods as a group, stocks expanded at a $11.3 billion annual rate in May, accounting for one-third of the total increase.

In addition, the April buildup in stocks of this category

was revised up sharply, from $5 billion in the preliminary report to $9.7 billion.

In both months, stocks held by producers of computer

and office equipment and telecommunications apparatus accounted for a sizable portion of the buildup.

In addition, inventories held by

producers of transportation equipment, chemicals, paper, printing and publishing also posted significant increases in May.

(The last

two categories are included in the "other nondurables" grouping in the attached table).

Stocks of home goods and apparel rose

$1.9 billion in May, down from the average monthly increase of $4-1/2 billion over the first four months of this year.

By stage of

processing, the May accumulation was fairly evenly distributed among stocks of materials, work-in-process, and finished goods.

However,

a good part of the finished goods accumulation in May occurred at

-2industries such as chemicals and paper, where a high proportion of "finished" products are actually materials for further processing. New orders for all manufactured goods rose 1.4 percent in May, retracing about two-thirds of the decline in April.

For nondefense

capital goods excluding aircraft, new orders are now shown to have increased 4.8 percent in May, somewhat stronger than the 4.1 percent rise indicated in the advance report last week.

Upward revisions in

bookings were notable in industries producing special industrial machinery, construction and materials-handling equipment, and communications apparatus. University of Michigan Survey The University of Michigan SRC index of consumer sentiment rose 2.9 index points to a level of 92.7, still below the January peak of 97.6, but well within the fairly narrow range of readings that has prevailed since early 1994.

This final survey result was

essentially the same as the early-June reading--indicating that the early-month improvement from the May level of sentiment was maintained through the end of June.

Most of the gain in the

composite index was attributable to a rise of four index points in the expected conditions component; the current conditions index edged up just one index point. Sales of New Homes Sales of new single-family homes jumped 19.9 percent in May to 722,000 units (annual rate), the highest monthly pace since March 1994.

In addition, the estimates of sales in February, March, and

April were revised up.

Large gains in sales were recorded in May in

all regions but the Midwest, where sales were unchanged.

The

monthly estimates of new home sales are notorious for their revisions.

Nonetheless, as it now stands, this report, combined

with data reported earlier on sales of existing homes, and surveys

-3of consumers, builders, and mortgage lenders, provides strong evidence of a pickup in housing demand during the spring. The inventory of unsold homes, which had been trending up for two years, edged down to 345,000 in May.

At May's higher sales

pace, the inventory represented only a 5.6 months' supply, the leanest position in a year and well below the long-run average. The average price of new homes sold in May was up 4.2 percent from a year earlier; the median price was 3.8 percent higher.

Both

increases are above those reported earlier this year, but are in line with the Census Bureau's constant-quality price index for new homes, which increased 3.8 percent in the first quarter. Initial Claims for Unemployment Insurance New claims for unemployment insurance fell back 27,000 to 373.000 during the week ended June 24, retracing most of the sharp rise a week earlier.

These swings, in part, resulted from temporary

layoffs in the motor vehicle industry in Delaware, Missouri, and Michigan. Real GDP and Related Items A table summarizing final first-quarter data for Real GDP and related items is attached. Tax Cut Provisions of the Budget Resolution This note clarifies the potential effects of tax cuts on budget resolution totals that were in the footnote on page 2 of Part 1 of the Greenbook.

The footnote incorrectly implied that the resolution

contained specific tax proposals.

Rather, the budget resolution

merely specifies that tax cuts may not exceed $50 billion as of fiscal year 2002 and may not total more than $245 billion over the fiscal 1996 through 2002 period.

Tax cuts are permitted only if the

Congressional Budget Office certifies that the outlay savings specified in the resolution will be achieved through actions spelled

-4out in the bill and that a balanced budget would be attained in fiscal 2002 with the tax cuts taken into account.

The specifics of

the tax cuts will be provided by the Senate Finance and the House Ways and Means Committees.

This means that the deficit-reduction

pattern specified in the budget resolution may change substantially once tax cut provisions are specified.

In particular, the House has

already passed a tax cut bill that would significantly increase revenues during the first year owing, among other provisions, to the increased capital gains realizations that would result from a cut in the capital gains tax rate.

CHANGES IN MANUFACTURING AND TRADE INVENTORIES

(Billions of dollars at book value and annual rates; based on seasonally adjusted data) 1994 Q3 Total Excluding wholesale and retail motor vehicles Manufacturing Wholesale Excluding motor vehicles Retail Automotive Excluding auto dealers

1995 Q4

Q1

1995 Mar.

Apr.

May

68.9

57.7

104.8

79.8

98.1

n.a.

51.9 13.7 22.0 22.3 33.2 17.3 15.9

55.2 21.1 25.5 25.9 11.1 2.9 8.2

75.2 41.1 35.0 28.9 28.7 23.4 5.3

61.8 28.3 37.2 38.1 14.4 19.0 -4.6

79.5 43.2 34.8 27.2 20.1 10.9 9.2

n.a. 30.8 n.a. n.a. n.a. n.a. n.a.

39.6 31.6 4.5 15.2 15.9 19.9 7.9 12.0

33.8 22.7 4.1 14.1 14.9 15.6 11.8 3.8

43.2 29.5 14.1 19.5 14.5 9.6 8.5 1.0

41.7 19.5 7.4 20.4 22.0 13.8 21.7 -7.9

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Constant-dollar basis Total Excluding motor vehicles Manufacturing Wholesale Excluding motor vehicles Retail Automotive Excluding auto dealers

1 INVENTORIES RELATIVE TO SALES

(Months supply; based on seasonally adjusted data at book value)

Q3 Total Excluding wholesale and retail motor vehicles Manufacturing Wholesale Excluding motor vehicles Retail Automotive Excluding auto dealers

1995

1995

1994 Q4

Q1

Mar.

Apr.

May

1.40

1.38

1.40

1.40

1.42

n.a.

1.37 1.36 1.31 1.29 1.53 1.76 1.46

1.36 1.35 1.31 1.29 1.51 1.68 1.46

1.36 1.35 1.33 1.30 1.54 1.81 1.46

1.36 1.35 1.33 1.31 1.54 1.80 1.46

1.38 1.37 1.34 1.31 1.55 1.85 1.46

n.a. 1.37 n.a. n.a. n.a. n.a. n.a.

1.46 1.50 1.41 1.40 1.40 1.57 1.63 1.55

1.44 1.49 1.39 1.40 1.39 1.55 1.62 1.53

1.44 1.48 1.38 1.42 1.40 1.57 1.71 1.53

1.45 1.49 1.38 1.43 1.42 1.57 1.72 1.52

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Constant-dollar basis Total Excluding motor vehicles Manufacturing Wholesale Excluding motor vehicles Retail Automotive Excluding auto dealers

1. Ratio of end-of-period inventories to average monthly sales for the period.

-6-

Inventory-Sales Ratios in Manufacturing by Market Category (Book value)

Total

Ratio

1988

1989

1990

1991

1992

1993

1995

1994

Home Goods and Apparel

Nondefense Capital Goods

Ratio

Ratio

1989

1991

1993

1989

1995

1991

1993

1995

Defense Products, Consumer Staples, and

Materials and Supplies Ratio

Ratio

Miscellaneous Goods 1.8

May

19 9 191 199 1989

1991

1993

1995

1989

199189 19911993-1--1991

1993

1995

Consumer Surveys Consumer Sentiment

1979

1981

Index, 1966=100

1985

1983

1987

1989

1991

1993

1995

Unemployment Expectations Index

Index

Michigan Survey (next 12 months)

June

I

I

::::::::: :I.I 1981 1983

I.:.: 1979

1 I 1985

1 1987

1989

:::: :: I 1991

I

I 1993

I

I

I

1995

Note. The unemployment expectations index is defined as the proportion of households that believe unemployment will rise in the near term, minus the proportion who believe unemployment will tall.

-86/29/95

Single-Family Homes New Homes Sales

Prices Millions of units, annual rate --

Percent 0.9

-Year-to-year change Median sales price (monthly)

Monthly

Four-month moving average

I

I 1992

I 1993

I 1994

1995

1992

1993

1994

1995

Existing Homes Sales

Prices Millions of units, annual rate 4.6

Monthly

1992

Percent [Year-to-year change

1993

1994

1995

1992

1993

1994

1995

6-30-95

Real Gross Domestic Product and Related Items (Percent change from previous period at compound annual rates; based on seasonally adjusted data, measured in 1987 dollars) 1993-Q4 to 1994-Q4 1. 2.

Gross domestic product Final sales

3.

Consumer spending

4. 5. 6.

Business fixed investment Producers' durable equipment Nonresidential structures

7.

Residential investment

1994-Q3 Final

1994-Q4 Final

1995-Q1 Prelim. Final

4.1

4.0

5.1

2.7

2.7

3.4

4.3

5.7

2.5

2.6

3.5

3.1

5.1

1.8

1.6

12.9 15.5 4.6

14.1 18.1 1.6

17.6 19.6 11.0

20.7 22.5 14.3

21.5 24.5 11.5

3.1

-6.0

2.3

-2.6

-3.4

8. 9. 10. 11.

Federal government purchases Defense purchases Nondefense purchases State and local govt. purchases

-5.9 -8.2 -1.0 2.0

10.9 12.8 6.8 4.3

-14.4 -21.8 2.9 2.3

-4.2 -7.3 1.8 .5

-3.8 -7.5 3.6 1.0

12. 13.

Exports of goods and services Imports of goods and services

11.6 13.8

14.8 15.6

20.2 11.4

2.5 8.8

4.8 10.1

40.7 2 6.0 2 34.7 2

47.4 8.0 39.4

41.7 11.1 30.6

49.8 13.6 36.2

49.1 14.2 34.9

7.1 2

9.7

7.7

2.5

2.0

ADDENDA: 14. Nonfarm inventory investment 1 Motor vehicles 1 15. Excl. motor vehicles 16. 17.

Farm inventory investment

18.

Net exports of goods and services 1

19.

GDP fixed-weight price index

2.9

3.0

2.6

3.3

3.3

20.

GDP implicit price deflator

2.3

1.9

1.3

2.2

2.2

21.

Corporate profits 3

542.7 2

556.0

560.3

568.8

569.7

22.

Profit share 4

8.1 2

8.2

8.2

8.2

8.2

23.

Personal saving rate (percent)

4.1 2

4.1

4.6

5.1

5.1

1. 2. 3. 4.

-110.0 2

-117.0

-107/1

Level, billions of 1987 dollars. Annual average. With inventory valuation and capital consumption adjustments: level, billions of dollars. Economic profit as a share of nominal GNP.

-120.0

-118.5

-10SELECTED FINANCIAL MARKET QUOTATIONS (Percent except as noted) 1994

1995

Instrument Feb 3

High _______ _______

SHORT-TERM RATES 2 Federal funds

SFOMC-. May 23 _______

Change to Jun 29, From 1994 Feb 3

Jun 29

~~~I ____

_

_

_

_

_

_

1995:

From 1994 high _

From FOMC. May 23

____

3.07

5.66

5.99

5.95

2.88

0.29

3.13 3.27 3.52

5.78 6.38 6.84

5.73 5.69 5.63

5.50 5.41 5.43

2.37 2.14 1.91

-0.28 -0.97 -1.41

-0.23 -0.28 -0.20

3.16 3.25

6.13 6.32

6.05 6.06

6.11 5.95

2.95 2.70

-0.02 -0.37

0.06 -0.11

3.11 3.25 3.41

6.10 6.39 6.89

5.99 6.03 6.07

5.98 5.89 5.78

2.87 2.64 2.37

-0.12 -0.50 -1.11

-0.01 -0.14 -0.29

3.06 3.25

6.06 6.38

5.00 6.03

6.00 .388

2.94 2.63

-0.06 -0.50

0.00 -0.15

6.00

8.50

9.00

9.00

3,00

0.50

0.00

4.60 5.81 6.31

7.82 8.04 8.16

6.22 6.57 6.87

5.95 6.28 6.65

1.35 0.47 0.34

-1.87 -1.76 -1.51

-0.27 -0.29 -0.22

5.49

7.37

6.15

6.28

0.79

-1.09

0.13

7.35

9.05

7.83

'.55

0.20

1.50

-0.28

6.97 4.12

9.25 6.79

7.83 6.10

7.53 5.84

0.56 1.72

1.72 -0.95

-0.30 -0.26

0.04

Treasury bills 3-month 6-month

1-year Commercial paper 1-month 3-month

Large negotiable CDs 1-month 3-month 6-month

4 Eurodollar deposits 1-month 3-month

Bank prime rate

INTERMEDIATE- AND LONG-TERM RATES U.S. Treasury 3-year 10-year 30-year

(constant maturity)

5 Municipal revenue (Bond Buyer) Corporate--A utility. recently offered 6 Home mortgages FHLMC 30-yr fixed rate FHLMC 1-yr adjustable rate I

1989

I

1995

Record high Stock exchange index Level ------Dow Jones Industrial NYSE Composite NASDAQ (OTC) Wilshire

4589.64 294.93 940.09 5400.87

Date -------

Low, Jan, 3

SFrom

FOMC, May 23 Jun 29 ----------

6/22/95 2144.64 4436.44 6/22/95 154.00 283.80 6/22/95 378.56 879.64 6/22/95 2718.59 5172.35

1. One-day quotes except as noted. 2. Average for two-week reserve maintenance period closest to date shown. Last observation is average to date for maintenance period ending July 5, 1995. 3. Secondary market

4550.56 291.26 926.81 5333.11

I

SPercenta ge change to Jun 29 From From record 1989 From FOMC. May 23 high low -0.85

-1.24 -1.41 1.25

112.18 89.13 144.83 96.17

4. Bid rates for Eurodollar deposits at 11 a.m. London time. 5. Most recent observation based on one-day Thursday quote. market index changes. 6. Quotes for week ending Friday previous to date shown.

2.57 2.63 5.36 3.11

-11-

Commecial Bank Credit and Short- and Intermediate-Term Business Credit (Percentage change; seasonally adjusted annual rate) 1

Type of credit

1994

1994

Q4

1995 01

1995 Mar

1995 Apr

1995 May

Level, May 1995 (billions of $)

Commercial bank credit

1. Total loans and securities

6.8

4.0

7.8

8.3

14.1

9.2

3,451.8

2.

4.9

-7.4

-5.1

3.3

16.6

-3.8

949.9

0.0

-11.2

-6.1

-20.8

0.0

4.8

707.3

23.8

5.2

-1.9

81.7

66.3

-28.0

242.6

7.6

8.8

13.0

10.2

13.1

14.2

2,501.9

Securities

3.

U.S. government

4.

Other

5.

Loans

6.

Business

9.2

10.3

17.1

6.3

15.9

14.4

690.1

7.

Real estate

6.5

7.8

12.0

6.6

8.9

5.1

1,040.4

8.

Consumer

15.2

16.4

12.7

14.4

15.2

4.3

472.7

9.

Security

-17.2

-20.0

-9.1

33.6

60.3

185.2

84.5

3.3

3.4

13.4

23.9

5.2

21.1

214.2

10.

Other

Short- and intermediate-term business credit 11. Business loans net of bankers acceptances

10.9

18.1

6.9

15.5

16.0

683.7

12. Loans at foreign branches 2

-3.5

17.6

-5.0

45.6

19.5

25.0

13. Sum of lines 11 and 12

10.6

18.0

6.6

16.4

16.1

708.7

14. Commercial paper issued by nonfinancial firms

25.0

22.1

20.4

36.7

20.8

181.6

7.6

13.3

18.8

9.4

20.4

17.1

890.3

16. Bankers acceptances, U.S. traderelated 3 ,4

-8.3

-25.7

-21.2

20.2

-6.6

-26.7

17.6

17. Loans at finance companies 4

12.2

17.0

20.6

17.7

14.2

n.a.

376.6

8.6

13.7

18.7

11.9

18.4

n.a.

1,272.55

15. Sum of lines 13 and 14

18. Total (sum of lines 15, 16, and 17)

9.4

1. Except as noted, levels are averages of Wednesday data and percentage changes are based on averages of Wednesday data. For years, "percentage change" is percentage change in quarterly average from fourth quarter of preceding year to fourth quarter of specified year. For quarters, it is the percentage change in quarterly average from preceding quarter to specified quarter, annualized. Data are adjusted for breaks caused by reclassification. 2. Loans to U.S. firms made by foreign branches of domestically chartered banks. 3. Acceptances that finance U.S. imports, U.S. exports, and domestic shipment and storage of goods. 4. Levels and changes are based on averages of month-end data. 5. April 1995. n.a. Not available.

-12-

THE INTERNATIONAL ECONOMY Prices of U.S. Imports and Exports

In May, prices of non-oil imports rose 0.8 percent, the largest gain since monthly data began to be collected in January 1989.

All

of the end-use categories contributed to the rise, led by imported industrial supplies and foods.

Prices of imported finished goods

posted relatively strong gains for the second consecutive month. The price of imported oil rose sharply in May, albeit less strongly than in April. For April-May combined, prices of non-oil imports rose at nearly a 6 percent annual rate, noticeably stronger than in the first quarter and about 1/2 percent (annual rate) stronger than recorded in the third and fourth quarters of last year.

Much of the

increase in April-May relates to the weakening of the dollar in recent months.

The most notable price increases in April-May were

for imported capital goods and consumer goods, both of which had shown only small increases for several years.

While prices of

imported industrial supplies continued to rise at a double-digit rate, the increase was slightly less than during the previous two quarters.

The price of imported oil rose sharply in April-May.

By

area, the price index for imported goods from Europe, Japan, and Canada rose strongly in May; over the past twelve months prices of goods from these areas rose 7 to 9 percent (largely related to exchange rates for Europe and Japan, and to commodity prices for Canada).

Over the past year, prices of imports from the NIEs edged

up about 1/2 percent. Prices of exports in May showed the smallest increase since last September, influenced importantly by a slowing in the price rise of industrial materials.

For April-May combined, export prices

rose less than in the first quarter, and more than in any quarter of

-13last year.

Price increases of exported industrial supplies slowed a

bit in April-May compared with the first quarter.

However, prices

of exported capital goods rose more strongly in April-May than in the first quarter; this compares with price declines recorded for exported capital goods in each quarter of 1994. Erratum The correct figure for the growth of Mexican merchandise exports for the January-May 1995 period above their year-earlier level is 32 percent.

The correct figure for the decline in Mexican

imports over that period is 5 percent.

(See page IV-29)

-14-

PRICES OF U.S. IMPORTS AND EXPORTS (percent change from previous period)

Quarters 94Q4 95Q1 95Q2e/ (annual rates) Merchandise Imports Oil Non-Oil Foods, Feeds, Bev. Ind Supp Ex Oil Computers Capital Goods Ex Comp Automotive Products Consumer Goods Memo: Oil Imports ($/bbl) Merchandise Exports Agricultural Nonagricultural Ind Supp Ex Ag Computers Capital Goods Ex Comp Automotive Products Consumer Goods

3.8 10.9 5.5

4.4 15.2 3.3

7.9 15.2 -6.2 2.6 6.2 1.6

-0.4 15.3 -3.5 0.6 0.7 1 1

15.19

16.01

5.9 7.0 5.9

8.6 12.0 8.3

18.8 -6.3 0.0 2.3 1.2

23.5 -5.6 2.8 1.0 1 7

Months May Apr Mar (monthly rates)

-BLS Prices8.6 0.6 36.5 1.9 5.8 0.5 -3.5 11.4 -4.7 9.1 5.1 3.7

0.9 4.2 0.5

2.7 0.6 0.9 0.4 0.4 0.0

-2.5 1.2 -0.1 1.2 0.6 0.5

16.20

17.26

6.7 14.0 5.5

0.6 1.5 0.4

0.9 1.9 0.7

0.3 0.5 0.3

13.8 1.5 2.7 -0.2 2.6

0.9 -0.4 0.2 -0.3 0.2

1.8 0.1 0.5 0.0 0,3

0.7 -0.1 0.1 0.1 0.2

-Prices in the NIPA AccountsFixed-Weight Imports of Gds & Serv. Non-oil Merch Ex Comp Exports of Gds & Serv. Nonag Merch Ex Comp e/ Average of two months.

1.0 3.1 0.8